Page 5 - How To Avoid Going Bust In Business

If you are a salesman you want to nail the next deal. A designer wants to get the
next big product “look”. A geek wants to produce this amazing piece of software.
None of them are looking at the bigger picture. If you can’t be bothered with all that
“financial stuff”, go work for someone else. You’ll finish up richer, happier and a lot
older before you die.

4: Bad accounting

It is critical to know how you are going, especially during the early months and years.
Lack of proper accounts is like sailing a ship without charts.

If you don’t have the time or the skills to keep a creditable set of books, hire them in.
As I say below, there are plenty of people who can do this for you without having to
hire a $600 an hour accountant.

You could use an application like Xero to keep track of the cash. It’s not too hard to
work . . . I get some help from a Xero adviser who, for $70 an hour plus GST,
coaches me in using the system. It means I can see instantly who owes me money,
to whom I owe money and how my profit and loss report is tracking. She costs me
around $500 to $600 a year. She saves me thousands.

It means I can track the comings and goings of the cash flow on a daily basis. I
know days or even weeks in advance if there is going to be a cash crunch – when I
don’t have enough in the bank to pay the bills – and I can plan for it.

Many owners of SMEs (Small to medium enterprises) fail to keep adequate records.
They may not know, for instance, what their real costs of production are. They don’t
know their current cash position – they are working from day to day on the basis of
“If I get some cash in I’ll pay somebody”. Worst case is that the “somebody” is
themselves.

Paul Sargison, of liquidators Gerry Rea Partners, says “After having run 100's of
liquidations and receiverships, it seems to me the most common failing of
entrepreneurs is a lack of a serious commitment to a cash flow budget. A profit
budget is only the starting point for a cash flow budget.”

The saying I recall from my management study days is that "People who fail to plan,
plan to fail".

As the pressure and stress mounts score-keeping is one of the jobs that gets put off
till “tomorrow”. And you know how often “tomorrow” comes.

There are other administrative tasks that if put off, will lead to disaster. Tax returns
such as sales tax, VAT, GST. Accounting for and paying employee tax deductions,
superannuation contributions, health care plans and the like. If they are not done
properly and in a timely manner you will crash soon and at high speed. The
authorities to whom this money must be paid have very little patience with delinquent
businesses.